A GRAND ILLUSION

By Bill Bonner

It turns out that the self-interest that Vauban has called the 'father of war' becomes, according to Wayne Angell, the principal rampart of peace."
- John U. Nef

"In 1910, a book that had already had great success in England was translated and distributed in 11 different countries," writes a French economist, Philippe Simonnot. The author was Norman Angell, an economist with a worldwide reputation and a hot idea.

War, wrote Angell, was nothing more than a "great illusion." The illusion, according to Angell, was the "belief that steel and firepower alone protect people, whereas it is the force of Universal Credit that really muzzles the canon.

"Much good has been attributed to credit. Recently, it is said to have saved the republic...indeed the entire world economy...from getting what it deserved. But nearly a century ago, Angell believed it could do what no balance of power, technology, nor treaty had ever been able to do - maintain peace.

Angell had a bestseller. He was, as subsequent events were to show, either at least 100 years ahead of his time...or out to lunch forever.

His argument was logical, reasonable...and preposterous. People made war, he thought, for economic reasons. They sought to get richer by taking something away from somebody else. But modern economies had become too complex and interdependent, he said; that strategy would no longer pay off.

"Wealth in the civilized world," he wrote, "rests on a base of credit and commercial contracts." If these are confiscated by a victor, the wealth, which depends on credit, not merely evaporates, leaving the victor nothing in exchange for his efforts, but it also pulls him down.

"It is impossible for a nation to enrich itself by subjugating another country," Angell explained. In fact, the only way he could avoid being dragged into an economic decline along with his defeated enemy would be "by scrupulously respecting the enemy's property". Why then risk war?

Mr. Angell was an exception - even for an economist; he was such a good thinker he was dangerous.

Peek into the average brain and what you find is a collection of empty phrases and hollow ideas - strung together as though they were Christmas lights...illuminating about as much. A man may say that he is "for free trade", or that he is "against political correctness", or that he believes in democracy or value investing.

Polls show, for example, that nearly 100% of the population favors "education" and almost as many want to see more money spent on it. But few people actually take the time to learn anything. Instead, given a choice between watching television and studying...99.9% of the American population will choose TV.

Nobody believes that you can get rich by borrowing money...but almost everyone with an opinion on the subject seems to agree that low interest rates from the Fed boost the national economy and make people wealthier. And even staunch supporters of "free trade" can find dozens of reasons to make an exception - when the loot finds its way to their own pockets.

Put a man behind the wheel of an automobile - even a Democrat or a Gypsy - and you can usually trust his judgment. His miscalculations are few...and self-limiting. On the A-10 headed out of Paris on Friday night, for example - where the average speed is probably about 90 miles an hour in bumper-to-bumper traffic - drivers never make the same mistake twice.

But pluck him from his auto, put him in the State Department, on the Editorial Page desk or an Internet chat-line, or at the Fed, and he is almost immediately transformed into a menacing idiot. He can go on for many, many years...rising in prestige and rank...based on the silliest and most puerile claptrap.

Which doesn't mean he stops thinking. But it's a different kind of thinking...about things he knows nothing about. Instead of thinking about how he's going to get to work, how he's going to balance his checkbook, or what he's going to have for lunch...he begins to gab about foreign policy, credit patterns, military strategy, housing bubbles and the designated hitter rule...

Of course, that's what we do here everyday, too - kibitz about things we cannot see and cannot really know. At least we learned a long time ago that we do so with modest expectations. We cannot command, nor even predict, future events. But we must admit that it is fun to try.

Surely it was fun for Mr. Angell too. He gained an international reputation for providing a valuable service - he gave people a reason to believe what they wanted to believe. According to his logic, there was no further reason to spend money on national defense. "Modern wealth has no need to be defended," he wrote, "since it can't be confiscated."

He pointed out that even if Germany took over Holland intact, "not a single German citizen - except for the bureaucrats - would be enriched by a single pfennig." In fact, they'd be worse off, since they'd then have to compete with the Dutch merchants!

And what about getting tribute from the vanquished nation? Angell recalled that after the war of 1870, France had to pay huge penalties to Germany. What was the effect? The money could practically only be used to buy goods from France. So, "the war indemnities permitted the French to increase her exports to Germany...to the detriment of German industries," Simonnot elaborates. "Bismarck himself had commented on it and was publicly mortified."

What was the root cause of this astounding transformation? People had always made war; what was new? "The incredible progress of communications," Angell answered. And globalization! Only very recently, he explained, rapid mail delivery, as well as the instantaneous diffusion of financial and commercial information by telegraph, had changed the world. All of a sudden, people were manufacturing, buying and selling all over the world...with all sorts of different people. From the Hottentots of the Cape to the far away tribes in Borneo. Tea, tobacco, textiles, railroads - products were coming from nearly everywhere and nearly everybody seemed to be getting richer.

Who would want to disturb this peace and prosperity?

The German general, Bernhardi, complained about it. Pacifism was growing. People seemed unwilling to go to war...or even to think of it. "Growing wealth," he wrote, "causes us to live in the present; we no longer have the courage to sacrifice our pleasure for the realization of grand ideas."

Angell predicted peace. There was no longer any reason for war, he noted. But war, like love and markets, has a logic of its own. "War needs no particular motive," wrote Kant on the subject. "It seems to have its roots deep in human nature, appearing as a noble undertaking which brings both love and glory, but without any special benefit for anyone."

Four years after Angell's book appeared, the worst war in human history began.